About ten years ago I attended a national Metals Service Center Convention in Palm Desert, California. One of the programs featured Jeff McMahon, CEO of Enron Industrial Markets. He shared the stage with Don McNeeley, CEO of Chicago Tube and Iron, a large Midwest tubing supplier and fabricator and a Phd economist teaching at Northwestern. Don is an old friend and colleague and the smartest man I know in my industry.
Enron was well known for their innovations in the energy market and they were making inroads into applying many of the same principles from the energy markets into the metals business and other industrial commodities.
What I remember about McMahon was the level of arrogance in his address. He spoke of his company bringing in radical sweeping changes to the industry. He insinuated that all of the players in the room with decades of experience really did not know anything about the true needs of their customers. Enron and its markets would control the inventory and the mills and distributors would be mere adjunct pawns in the steel game that Enron controlled.
Mill executives were noticeably irritated.
In a February 2002 article in the Metal Center News Don noted that the rapid growth of Enron raised “questions about its methodologies”, and that the deregulation of the utilities placed their platform business in a very risky position. “Should the platform business implode, it was going to take every other spinoff business down the same sinkhole.”
Don’s view proved quite prescient. Enron’s demise was a record setting bankruptcy and many of its executives went to prison.
I recall a few instances of people promising to bring changes to institutions and industries that they knew nothing about. Short term radical changes are rare. Different industries have different characteristics that require experience to understand.
People who promise or promote radical change without understanding the fundamentals of the hosting organizations, have a remarkable tendency to destroy the effective and productive parts without realizing it.
Most mergers are either far more difficult to execute than expected or just do not work (AOL & Time Warner is perhaps the biggest failure). When disparate cultures join there is a tendency to replicate the worst features rather than the best. Big changes to big organizations or industries are just very difficult.
Changes that happen incrementally have a chance to be tested and refined. Large scale reforms destroy too much of the organism.
The founding fathers created a radical system by expressly limiting radical change. They created a system with divided powers that went beyond oppressive majority rule to protect essential principles. This is a republic.
The founding fathers were deeply suspicious of radical and unobstructed change or reform. So should we.
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